People in hospitality use debt to their advantage, so will always be levered up. Usually you have 70-80% debt on a property, you refinance as you increase your NOI. His other businesses have a much higher operating margin, but the team gains are usually upon sale, hes already had a 100% gain on this asset, but considering its been 8 years, it does not beat even the S&P compounded over time. I went in depth in previous posts of how NBA teams are trophy assets (operate at near break even, loss, or small gains, the gain comes from sale after asset appreciation), thats even considering most of the gain is upon sale, you will expect 20-30% on a business, 10% in US markets, and these NBA teams are usually below that assuming a sale after ~7-10 years to realize a gain. That being said Tilman wants to win, this is a trophy asset and its less about just making money if his other businesses can remain profitable. It was a different story 5 years ago, he likely needed to penny pinch w the Rockets (he had westbrook on drink cups after he was traded a full season later). He is 68 and a true Houstonian, he will buy us a ring if he could. I understand liquidity, I have been in sell side M&A the past 10 years (moving back to buy side soon),18 years in finance, I use to run a family office that had a primary focus in hospitality, have come across many close to TF over the years.
The stock market over the last decade is an anomaly , and appreciation of NBA teams was more mild compared to years past. The league definitely took a dip for a bit but is making a big resurgence
This is false. I quoted 10% for US markets, that has been the annualized return the past 30 years, so no, it is not an anomaly over the past decade. i went in depth on a hypothetical Knicks transaction in other posts, because MSG is publicly traded and we have data on it, we also have data on some other teams high level, and came out to about 7-11% annualized returns, so considering the risk involved when you could beat this return w an index, NBA teams are still trophy assets. This was under the assumption of a sale after 5-7 years where your gain actually occurs, using historical growth and projected growth of revenue. The profit margins on NBA teams are fairly thin, your value comes from a high exit multiple. If you look at it from an EV/Rev prospective, the multiples are insanely high, and you have to understand there are much better businesses you can own, this is a trophy asset for wealthy people.
The S&P 500 the past decade is vastly different than the decade prior to that and then prior to that. For example, the market being propped up by 2-3 inbreeding companies at the moment isn’t the market you would expect to buy into when relaying the average returns over the last 8ish years. The nasdaq when excluding the past decade approaches 7%,— a full couple of hairs better than a high yield savings account. Give me the coveted and prestigious title of owning an NBA/NFL team that yields many fold return upon its sale than a bloated or famished stock market
Even if you removed the top performers, which wouldn't make sense, and take your 7% number, that is pretty much the lower end of what an NBA team is returning with a 5-7 year hold period w assumed sale, TF's other businesses have a 20-30% return threshold without an assumed sale after 5-7 years, so they are operating much more efficiently. That means he could be putting that capital to use w higher returns, but chooses to own an NBA team because it is a trophy. The reason I included the past decade of S&P returns and do not see it as an anomaly is because I also was looking at NBA team returns over the same period, so this was a true apple to apples comp. You can not exclude the last decade and then compare to the transactions/earnings of NBA teams over the past decade.
